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The Big Story

Nissan thrives in China, thanks to Ghosn

Against flailing US business, an unlikely bright spot for the embattled automaker

KENJI KAWASE, Nikkei Asian Review chief business news correspondent | China

TOKYO -- Two months before Chinese leader Deng Xiaoping unveiled his "reform and opening-up" policy in December 1978, the then-vice premier undertook a tour of Japanese industry. Visiting Nissan Motor's Zama plant on the outskirts of Tokyo, Deng was reportedly mesmerized by the factory's sophistication. Even then, most of the production was automated, and the facility was able to manufacture 94 cars per worker, per year.

"I understood what modernization was about," Deng told his host, then-Nissan Chairman Katsuji Kawamata.

Deng's reforms helped China to bring in foreign investment, jolting its economy out of the shambles of the Cultural Revolution. Nissan, however, failed to capitalize. Throughout the 1980s, its global rivals, including Volkswagen, AMC -- now Fiat Chrysler Automobiles -- and Peugeot -- now PSA Group -- established joint ventures with local partners. Honda Motor and Toyota Motor later joined them. Nissan, however, was constrained to a small-scale joint venture of pickup trucks in the central Chinese city of Zhengzhou.

Having missed its opportunity in the 1980s, Nissan was pushed to the brink of bankruptcy in the 1990s, recording seven years of net loss between 1992 and 1999. The Zama plant that so impressed Deng was shut down in 1995.

It was Carlos Ghosn who turned around Nissan's fortunes in China. The controversial CEO and president of Nissan, who was ousted in 2018 and arrested on charges of misusing the company's assets, cut a deal in 2002 to establish a joint venture with Dongfeng Motor Corporation, a state-owned automaker.

"China is Nissan's new frontier," Ghosn said at the signing ceremony at the Great Hall of the People in Beijing that September. Nissan invested 8.55 billion yuan -- then $1.03 billion -- to gain a foothold in the Chinese market. Its partner Dongfeng was, like many state-owned enterprises, struggling to keep up with the rapidly changing market and to develop technologies that were competitive with international rivals.

That investment bore fruit. China overtook Japan as the world's second largest auto market in 2006, and surpassed the U.S. to become the largest in 2009. Nissan was the third-largest foreign auto brand in the country in 2018, selling a record-breaking 1.56 million units -- 2.9% higher than the previous year, when the Chinese auto market shrunk for the first time in 28 years.

Nissan's successful catch-up in China is partly owed to the special arrangement won by Ghosn. The Japanese automaker was the first foreign joint venture to win a license as a full-line manufacturer of trucks, light commercial vehicles and passenger cars, in return for helping support the ailing state-owned maker.

In the first eight months of this year, auto sales in China have contracted by double digits -- but Nissan's sales are rising.

"The Chinese auto sector has entered a low-growth period, but Japanese brands will still grow, in relative terms, in 2020 -- especially Toyota and Nissan," said Kohei Takahashi, Tokyo-based auto sector analyst at UBS Securities. A rare bull on Nissan, Takahashi said that Nissan's China-focused lower-priced second brand Venucia, or Qichen, has been instrumental in attracting first-time buyers in the country.

The carmaker's success in China stands in contrast to its travails in the U.S., where the Ghosn-era strategy of heavy discounting and fleet sales have undermined profitability and dragged down the whole company's performance. In July, Nissan said that its profits for the first quarter were down 99% on the year before, and that it would shed thousands of jobs worldwide.

Nissan's joint venture with Dongfeng certainly gave a leg up to its negotiating partners. Wu Bangguo, who was vice premier at the time and oversaw large-scale state-owned enterprises, later rose to number two only behind then-President Hu Jintao. Miao Wei, Ghosn's counterpart at Dongfeng at the time of the deal, is now minister of industry and information technology.

This October, the partnership produced a new elevation. Makoto Uchida, Nissan's China head, was announced as the new CEO. When he takes over in January 2020 -- with a brief to distance the company from Ghosn's failings -- Nissan's Chinese strategy is one area of his predecessor's legacy that he may seek to extend.

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